God and the Godfather – Bulgaria’s ‘perfect storms’

Bulgaria was just shaken by two different storms – environmental and banking.

Torrential rains have now washed the Bulgarian seaside, hitting particularly harshly the Black sea port city of Varna. Varna’s district “Asparuhovo” suffered the most severe impacts – the flooding caused the death of at least 11 people. The ground floors of the houses, the basement of the apartment buildings, streets, and parks were covered by a thick layer of heavy silt and sand. In places the wave of water reached 3-4 meters in height and 10 meters in width, ruining the infrastructure of the neighborhood and demolishing dozens of houses. The severe damage from the floods is also caused by indiscriminate logging, and poor infrastructure, which cannot accommodate the great amount of new homes that has been built in recent years.

Heavy rains in the rest of the country have damaged further the public infrastructure. ‘The passage of the Republic’ will remain closed to traffic, as the water has swept away large sections of asphalt, there are no crash barriers, and the landslides have resulted huge mud sediments. The regions of Veliko Tarnovo and Dobrich remain in dire situation, as the torrential rain has resulted in the complete demolition of several houses. Now on the 23rd of June Bulgaria has announced a national day of mourning for the victims of the floods.

The Providential downpour was accompanied by a banking storm. The 4th largest Bulgarian Bank – the Corporate Commercial Bank (abbreviated in Bulgarian as KTB) has just announced that it is suspended from doing business. KTB is Bulgaria’s fourth largest bank by assets, which totaled BGN 6.74 bn (3.35 bln euros) at the end of 2013 – and the biggest domestic institution. The bank has grown fast in recent years, and for a period attracted substantial deposits from state-owned enterprises. Last year Deustche Welle made public the finding that KTB ‘safeguards’ almost all of the money of the state energy companies: 96% of the funds of “Bulgartransgas,” 90.85% of the money of “Bulgargaz,” 94.76% of the Electro-energy System Operator, and 88.20% of the Bulgarian Energy Holding.

The banking storm hit on Friday the 20th of June, the Bulgarian National Bank (BNB) suddenly froze the operations of KTB, suspended its directors and put the bank under special supervision following a bank run that had raised risks of insolvency. BNB intervened at the request of KTB, which pleaded “exhaustion of liquidity and termination of all payments and banking operations”. As depositors formed long queues in front of the bank offices, BNB revoked the rights of KTB shareholders and appointed a supervisory board.

The reasons for the bank’s misfortunes are as murky as Varna’s flood waters. The right-wing newspaper ‘Capital’ asserted that the bank has been growing according to the ‘formula’: “government money – acquisition of assets – loans to related companies.” The deals have tripled the bank’s assets in only three years, but now they may lead to the bank’s collapse. While the lucky KTB enjoyed an unprecedented growth, all other banks have barely managed to hang on, with growth of just above zero, because of the crisis, explains ‘Capital.’ ‘The model of the Bank was based not on natural market approach, but on political protection and feeding from state resources,’ states the right-wing newspaper. In the period 2009-2013 the bank concentrated almost free capital from the state enterprises amounting to almost 1 bln leva (500,000 euros). However, instead of creating sustainable business, the owner of the bank and his partners credited themselves, concludes Capital.

While KTB has won and lost billions of euros, the government is now offering a one-off help of 10,000 leva (5,000 euros) to the families of the people, killed by the deluge. ‘It is not the flood, but the post-socialist transition that drowned us,’ writes the center-left newspaper Duma. While the politicians of all colours throw at one another the muddy ball of responsibility, caught between the Biblical deluge and Godfather-style banking machinations, the Bulgarians suffer the consequences of the ‘perfect storms.’

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